Portfolio

GOALS BASED FINANCIAL PLANNING 

Contact
FM Financial Solutions’ aim is to deliver more certainty and to conduct our business with the highest integrity
Our Investment Philosophy

The basis of our investment philosophy is that better outcomes for clients result from trying to increase the certainty of future investment outcomes or returns.

Greater certainty is mainly an outcome of reducing the level of risk (particularly volatility or the variability of returns), and by reducing the size of capital drawdowns (peak-to-trough decline during a specific period of an investment, usually quoted as the percentage between the peak and the trough).



We believe, and a lot of research supports our belief, that over the longer term lower volatility portfolios will produce better outcomes for clients.

In addition we do not seek to beat markets or indexes, as these have no relationship to the achievement of your personal goals and objectives. Instead when building portfolios for you we aim to achieve a target return of CPI +3% (with minimal volatility or variability of portfolio returns).


Hence when selecting investments to hold in client portfolios we are looking for investments that are not all correlated to each other (ie those which don’t all move in the same direction, particularly during an event like the GFC) and that have the ability to deploy strategies to reduce losses. Importantly we do not wish to rely on only one asset class or manager for returns and are mindful of valuation (as buying expensive assets reduces future returns).

Common Investment Approaches
There are two main camps when it comes to investment approach:
Passive/Index

This investment approach essentially means investing in a fund that replicates the relevant benchmark or index (eg. ASX 200 Accumulation Index). As such this approach will provide the investor with a similar return as the market or index as illustrated:
Chart 1
Active

This investment approach aims to generate a return above the relevant index or market as a result of making active investment decisions as illustrated, as well as preserve investor capital.
active
This investment approach often confuses investors, as there are many managers who claim to be active, however in reality invest close to the index and as such generate returns like a passive or index manager as illustrated:
active
The investment industry’s main focus when it comes to investment is to try and beat the index or benchmark (for example the ASX 200 Accumulation Index) in a relative sense, eg. Index down -35% and Fund is “only” down -30% so the Fund as outperformed relatively, but still lost 30%, which in dollar terms for a $1,000,000 portfolio = $300,000 loss.

Or in the case of the ‘passive or index’ approach to ‘give up’ trying to beat the index and simply accept the market’s or index’s return.
Our Approach is Different 
However if your portfolio is able to generate a more consistent return (characterised by low volatility) as illustrated below, then we believe that we can increase the certainty of growing your capital, and importantly reduce the potential for loss:
chart 3
We believe that both PASSIVE AND ACTIVE Investment approaches on their own have nothing to do with helping to achieve your individual goals and objectives. Instead, we believe that our investment approach, which is based on building very diversified portfolios that aim to generate absolute returns (a return above zero) and a real return (a return above inflation eg. CPI+3%) and do so with as little volatility (variability of returns) as possible, are more likely (though not guaranteed) to achieve your long term goals and objectives
We believe that taking on RISK does not necessarily result in better outcomes as illustrated below. This graph compares our portfolio’s historical performance with the Australian Share Market.
chart 2
Source of charts: Lonsec Research
WARNING
It is important to note that past investment performance is not an indicator not a guarantee of future performance.
Investors should seek professional financial advice prior to making any investment decision. In regard to our investment approach, we do not guarantee that future portfolio performance will always be positive, however we do aim to MINIMISE LOSSES.
How does this approach help you?

You invest with the aim of growing your assets over time. If your portfolio experiences a fall in value, you may end up having less than you invested, which means that you have not achieved the first aim of investment, to grow your wealth.

In addition the larger the size of the fall (draw-down), the larger the required return to get your portfolio back to where it was prior to the fall. A draw-down of -50% will require a +100% return. This level of return may not actually be possible, or may take many years to achieve. If your portfolio is paying an income stream or a lump sum (possibly for a home deposit), then combined with the fall (draw-down) in the value of your portfolio, your portfolio may never recover its’ value, as the available assets exposed to the recovery in prices is reduced.
Share by:

Powered by Telstra Business Website Services